How to Set Your Retirement Goals

Write a job description for your investments.

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How to Set Your Retirement Goals
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By Dana Anspach

Intention is powerful. We don't give it enough thought. Most of us go though life unintentionally falling into a career path, unintentionally meeting (or not meeting) a spouse, unintentionally gaining weight and so on. Much like a pinball working its way through the machine, life swats at us, and we react.

We unintentionally accumulate investments in the same way. Perhaps you get a certificate of deposit. Then there is that annuity one person sold you. There is that Apple (AAPL) stock you "had" to buy and that mutual fund you read about in the latest finance magazine, along with the funds inside your 401(k) plan.

Pretty soon, you'll have a collection of investments that may or may not be aligned toward a common goal.

If this sounds like you, what can you do to bring some intentionality to your investment choices? Here are three things you can do:

1. Get clear on what your goals are. The first thing you must do is understand your goals. I like the idea of writing a job description for your investments.

If you are 40 years old, do you care about the fluctuations in your portfolio value this week or next month? Probably not -- and if you do care, either you don't understand investing or you should stick with safe investments that aren't going to have a lot of volatility. At 40, your primary concern should be a strategy that gives you the highest probability of maximizing returns over a 20-year time horizon.

If you are 64 years old, retiring next year, and will need to withdraw $50,000 from your investments, do you care about your portfolio value this week or next month?
You bet you do. You don't want to sell $50,000 of investments after a major market correction. At this point, you need to make sure your near-term cash flow needs can be met, regardless of the ups and downs of the market in the year or two after you retire. A laddered bond strategy may be perfect.

What about a Roth individual retirement account? With a Roth IRA, you can always withdraw your original contributions at any age without taxes or penalties owed. In that case, should your Roth IRA have a dual goal, with a portion of your contributions invested safely as your emergency reserve fund, and any excess invested aggressively, with the idea you won't touch it until age 70 or older? For those without an adequate emergency fund, this might be the perfect job description for their Roth IRA.

Happy young couple discussing with a financial agent their new investment.

2. Evaluate the most effective solutions. Once you have a goal, you evaluate the choices most likely to help you achieve the goal. This is more difficult than you may think. Often, a simple portfolio of only a few index funds is more likely to achieve your goal than something far more complex.

For example, low costs have been proven to be one of the best indicators of a smart fund choice, yet people are still drawn to funds with fancy strategies and high fees. There are hedge funds, private placements, options writing (puts and calls), precious metals funds, biotech funds and many other fun, more exotic choices. But are they any more effective at helping you achieve financial security than a plain portfolio of index funds? Probably not.

Inside your 401(k) plan, the most effective solutions are often the professionally designed model portfolios or target-date retirement funds. Outside your 401(k) plan, such options work just as well.

You can include a few small tweaks so investments that have high turnover or generate a lot of interest income are tucked inside your retirement accounts, while investments most likely to deliver long-term capital gains and qualified dividends are held in nonretirement accounts. This type of tweak will help you take advantage of the lower tax rate on long-term capital gains and qualified dividends.

What about solutions that provide guaranteed income, like a variable annuity with an income rider? If you are 10 to 15 years from retirement and your goal is to create a certain level of income that is available to you at your retirement date, this annuity is like insurance for a portion of your retirement money. It insures a minimum level of retirement income.

3. Begin a transition plan. Once you are clear about your goal and the most effective solutions, you can make a transition plan. Most of the time there will be tax consequences, and perhaps surrender charges, if you rearrange your entire investment collection at once. This is why a transition plan is needed.

Your transition plan accounts for all tax consequences, your overall allocation and risk level and fees and penalties. For example, as you near retirement, you may know you need to reduce risk. You may be able to strategically wait to realize capital gains until you will be in the zero percent capital gains rate the year after you retire. To keep your risk level appropriate, maybe you reduce risk in your retirement accounts now, as there are no tax consequences to making changes within those types of accounts. Then you plan on reducing risk in your nonretirement accounts once you are in a lower tax bracket.

What about that variable annuity you bought a few years ago? If the guarantees in the annuity provide a certain level of income, there is no downside risk to an aggressive position within the contract. It may make sense to be very aggressive with the investments inside it, as that gives the annuity the best possibility of delivering a result that is better than the insured outcome. This is a change that could be made right away.

Remember to be intentional. The closer you get to retirement, the more intentional you need to be. When you retire, your money has a specific job to do for you. Picture that pinball going through the machine. Bouncing around is fine as long as you get to your goal, but as you get closer to retirement, you're going to want a much smoother course to the finish line.

Dana Anspach, certified retirement planner, retirement management analyst, Kolbe Certified Consultant, is the founder of Sensible Money, a registered investment adviser with a focus on retirement income planning based in Arizona. She is the author of "Control Your Retirement Destiny" (Apress), writes for About.com as its Expert on MoneyOver55 and contributes to MarketWatch as a RetireMentor.



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40 Comments

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raginnftmfs

Where are you now and where do you want to be when you retire? Those are two of the biggest questions you need to consider when making your plan. Once you figure that out, take a look at http://www.mutualfundstore.com/planning-and-retirement because it will help you make a plan and stick to it. The sooner you get going on saving, the better off you will be.

April 24 2014 at 1:28 AM Report abuse rate up rate down Reply
Summer Scheifer

I live in Dubai for about 3 years now and I must say that you really need a health insurance. Its better to have it read more on this article: http://www.dubaifinancialadvice.com/health-cover. According to Alwyn Owens (my financial advisor) you really need to get it for yourself. You can learn a lot from him and pretty sure that you will never regret hiring him.

March 02 2014 at 3:56 AM Report abuse rate up rate down Reply
ctjhowie

I was ready to retire the day I started work, but the REAL question remains unanswered. How much cash is enough?

February 02 2014 at 11:18 AM Report abuse +2 rate up rate down Reply
3 replies to ctjhowie's comment
toosmart4u

The trustees of the social security trust fund now reports that in 2033 there will be a 25% cut in monthly payments to retirees. If nothing is done to shore it up. Remember when Bush Jr. took over for Clinton he had a surplus of revenue each year. The democrats wanted to shore up social security and pay on the national debt with smaller tax cuts. The GOP wanted tax cuts and look what we got. The GOP is to gblame. The GOP is not the right way to run this country.

February 02 2014 at 7:59 AM Report abuse +2 rate up rate down Reply
4 replies to toosmart4u's comment
toosmart4u

The GOP money machine wants to end social security. Imagine how much more the corporations can make by not paying their part of the social security. Too Many good paying mfg. jobs have been sent over seas. Ref. Mit Romneys investment corp. sending 166 jobs to China and having to train the Chinese on how to do the jobs. Now Bush Jr. in his last 6 years took out over a trillion dollars out of the social security trust fund. Interest today on the federal notes are very low compared to the intereest they received on the cash investments.

February 02 2014 at 7:55 AM Report abuse +2 rate up rate down Reply
weilunion

This is sickening corporate propaganda. As if Americans could retire. Many have two jobs, many work precariously or when there is work, many have no work at all.

America is now in the worst condition financially for Americans than during the Gilded Age of the robber barrons and railroad tycoons.

Only those who are in the one percent retire. But they do no work but damage the economy for their own self interests.

Google it: the average retirement age now is 73 -- 11 years more than 35 years ago. And America is quickly seeing mortality rates rise as diabetes and bad food accompany the American Scheme.

February 01 2014 at 6:21 PM Report abuse +5 rate up rate down Reply
3 replies to weilunion's comment
cmonsulick

Reality check America...there is no magic pill to help you lose 100lbs; playing the lottery is NOT a sound retirement plan and social security was NEVER intended for someone to live on or to even exist as long as it has. Sorry to burst your bubble America but you will have to work and save in order to survive. I may or may not outlive my retirement savings but at least I'm working towards it, not waiting on our incompetent government to "save me"! What a joke!!! At least I can live within my means and balance my budget LOL!!!!!

February 01 2014 at 2:58 PM Report abuse +2 rate up rate down Reply
1 reply to cmonsulick's comment
weilunion

Wait until the dollar crashes and inflation hits. Then your nightmare begins

February 02 2014 at 6:20 PM Report abuse +2 rate up rate down Reply
SPQR

One way to save alot is never to get married to anyone or anything. Women cost a fortune!! Statistics show that on average a wife costs 30K plus a year to support not including kids. Each kid costs on average 1.3 million to raise to age 21. Sooooooooo

So men just stay single then you will have millions and you can find a woman who will cook and clean just for room and some food when they are older or even younger

February 01 2014 at 1:29 PM Report abuse +3 rate up rate down Reply
2 replies to SPQR's comment
betty_brock

SPQR, I'm glad you are doing women a favor by not marrying.

February 01 2014 at 10:31 PM Report abuse -6 rate up rate down Reply
weilunion

Women are commodities under capitalism. Now people talk of them again as objects that have a cost. How sad. Instead of understanding how a corrupt economic system called capitalism works and who for, women are blamed as costing money and thus we men should stay single. This is the culture of individualism that has destroyed America and much thinking.

It is myisogynist, immature and dead wrong.

February 02 2014 at 6:19 PM Report abuse +4 rate up rate down Reply
1 reply to weilunion's comment
worried man

you can have my wife !

February 02 2014 at 11:59 PM Report abuse +1 rate up rate down
SPQR

If you have 20 years to retirement then you need to save $200,000 per year then you will be all set....

February 01 2014 at 1:23 PM Report abuse +3 rate up rate down Reply
donr1

Interesting! I don't see real estate income property mentioned at all. Could it be that the extremely smart investment counseler doesn't get a cut of the deal. Leverage, appreciation, and steady money income is a benefit that creates one of the best long term investments for retirement. Buying with 20% down and letting the property pay for itself off over 20 or 30 years, makes great retirement sense. But then, where does the poor stock broker get paid, oh that's right, they don't. Just another benefit.

February 01 2014 at 11:39 AM Report abuse +1 rate up rate down Reply
2 replies to donr1's comment
weilunion

Yes, any of you Americans out there, those of you in the working class or unemployment lines, interested in an investment counselor? How is your income property faring, those of you who are African American and see unemployment rates of over 30%? How's this slick Wall St. newspeak working for you?

February 01 2014 at 6:23 PM Report abuse +1 rate up rate down Reply
1 reply to weilunion's comment
obamasam0r0nl

whose, not who's

February 02 2014 at 4:44 PM Report abuse -2 rate up rate down
Alex Denton

By real estate I'm assuming you are referring to rental property. It works as long as your the "average" Joe with a few properties. Because rental properties have to be maintained, tenants have to pay rent, have to be screened when the previous one moves out etc. so its like having a part time job when you retire. As long as you are ok with that you can make anywhere from 10-15% when you factor in appreciation, depreciation tax breaks and the rental income profit.

February 02 2014 at 1:45 PM Report abuse -1 rate up rate down Reply
1 reply to Alex Denton's comment
weilunion

Rental property? Most people can hardly afford rent.

February 02 2014 at 6:17 PM Report abuse +1 rate up rate down